Poor harvest leads to soaring global tea prices

Tea prices jumped to a two-and-a-half year high, as some of the most important tea-producing countries have affected supply.

Dry weather, less rain and frost affect the tea production in Kenya, the largest exporter of black tea. Insufficient rainfall has reduced production expectations for the other two major tea exporters, India and Sri Lanka.

Since the beginning of the year, the wholesale price of top grade black tea (BP1) has soared by 41%, exceeding the previous month's $4 per kilogram. This level had previously only appeared once in late 2009 when the price reached $5.45.

Drinkers of Cairo Sweet Tea, London Milk Tea, and Los Angeles Ice Tea will feel the impact of rising tea prices. Analysts said that tea drinkers in poorer countries such as Afghanistan and Pakistan may suffer the most, because retailers in these places have lower profit margins than the West.

Kaison Chang, secretary-general of the UN's FAO Intergovernmental Tea Group, said retailers are unlikely to pass on all the gains to consumers. He said: "It is expected that this will have some impact on retail prices, but in the retail sector, the competition between various beverages is quite fierce."

Unlike coffee, tea is not traded on futures exchanges. Instead, it is traded at a weekly auction held in Mombasa, Kenya.

Traders and analysts believe that tea prices may continue to climb this year. According to the Tea Board of Kenya, Kenya’s tea production was 158,000 tons in the first six months of this year, a decrease of 11.3% from 2011. Chang Yusong said that tea production in India and Sri Lanka may be reduced by 5% to 10% from last year.

He said: "There are indications that the price of tea will rise to a very high level." He added that the decline in output will make the price of tea at a level of approximately $4.50 per kilogram.

Traders said that in recent months, the largest tea importing countries - Russia, the United Kingdom, Pakistan and the Middle East - have increased their stocks, which means that in the short term, prices may fall as buyers withdraw from the market.

Dutch tea trader Van Rees said in its latest market report that tea prices are expected to “short break a few times and rise again in winter”.

However, in the traditional tea export countries - India and China, demand is heating up rapidly. Chang Yusong said: "In the past five years or so, consumption levels in China and India have been rising rapidly, which has greatly promoted price increases."